Feb. 27 (Bloomberg) -- Crude oil fell below $61 a barrel on diminishing concern that any new sanctions against Iran for developing nuclear energy will disrupt supplies.

Iran, the second-largest producer in OPEC, risks further sanctions after ignoring a UN Security Council resolution ordering it to stop uranium enrichment by Feb. 21. Officials agreed yesterday at a London meeting to discuss ``elements'' of new sanctions, said Sean McCormack, a U.S. State Department spokesman.

``The market is overdone, overdone,'' said Rob Laughlin, a senior broker at Man Financial Ltd. in London. ``People realized that there is no way they are going for strict sanctions,'' he said.

Crude oil for April delivery fell as much as $1.18, or 1.9 percent, to $60.21 a barrel on the New York Mercantile Exchange and was at $60.50 at 1:04 p.m. in London. Oil traded earlier near a nine-week high.

The U.S. government says it suspects Iran is working on a nuclear bomb. Iran says it wants nuclear capabilities for power generation. The five permanent members of the UN Security Council, plus Germany, will start to ``hammer out'' details by telephone on March 1, McCormack said yesterday.

Brent crude oil dropped as much as $1.10, or 1.8 percent, to $60.23 a barrel on the ICE Futures exchange and traded at $60.54 in London.

The U.S. government may say tomorrow that U.S. crude oil supplies gained 1.75 million barrels, according to a Bloomberg News survey of 11 analysts ahead of the Department of Energy report. Oil inventories held 327.6 million barrels on Feb. 16, 9 percent more than the five-year average for the period, according to the department.

Distillates, Gasoline

U.S. distillate stockpiles, including heating oil and diesel, probably fell 2.5 million barrels last week, the survey showed. U.S. inventories of gasoline fell by 1.5 million barrels last week because refineries trimmed production, according to the survey.

Gasoline demand in the U.S., the world's largest oil consumer, peaks between the Memorial Day holiday in late May and Labor Day in early September. Consumption in the four weeks ended Feb. 16 averaged 9.1 million barrels a day, 3.8 percent higher than the same period a year ago, according to the U.S. Energy Department.

Refinery Usage

U.S. refinery utilization dropped in the past two weeks as oil companies shut units to prepare for peak gasoline production, and after fires and breakdowns at several plants.

Refiners probably used 85.6 percent of plant capacity last week, according to the Bloomberg News survey. That would be an increase from the 85.2 percent rate the week before, the lowest since March 3, 2006.

Some analysts said the gasoline supply statistics and the reduction in refinery processing will lead oil higher.

``Utilization rates are low, so that gives us the indication that prices will be trading higher,'' said Jonathan Barratt, managing director of Commodity Broking Services in Sydney.

Oil may rise 4.2 percent to $64.15 a barrel in New York as hedge funds buy futures and U.S. demand increases, said Frederic Lasserre, head of commodities research at Societe Generale, France's second-largest lender. It's an ``obvious short-term target,'' based on charts traders use to identify peaks in prices, he said in a report this week.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

Last Updated: February 27, 2007 08:12 EST